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Will your APY donation be tax-deductible if your membership expires for income taxpayers?

From October 1, 2022, income taxpayers will be prohibited from investing in the Atal Pension Yojana (APY). The question now is whether a current APY investor may continue to claim a tax deduction for their contributions to the program.

Executive Partner S Vasudevan of Lakshmikumaran & Sridharan Attorneys said, “According to the announcement of August 10, 2022, income taxpayers would be unable to enroll in the Atal Pension Yojana beginning October 1, 2022. The APY plan solely intends to limit income taxpayers’ admission from October 1, 2022. As a result, APY customers who joined before October 1, 2022, can continue to invest and benefit from the tax breaks. They may deduct their contributions under Section 80CCD(1) of the Income-tax Act of 1961.”

“It is noteworthy that the announcement dated August 10, 2022, does not clarify the income-tax consequences for contributions made to the APY plan either before or after October 1, 2022,” says Suresh Surana, founder of tax consulting firm RSM India.

Investors who contribute to APY before October 1, 2022, he claims, will be eligible for a Section 80CCD deduction (1). Surana adds that the government’s clarity in this regard would be very welcomed.

On February 19, 2016, the government announced the income-tax benefit for the Atal Pension Yojana. Those who invest in APY are now eligible for the same income-tax benefits as subscribers to any registered plan, such as the National Pension System. It is crucial to remember that the maximum deductions under Section 80 CCD (1) and Section 80C are restricted to Rs 1.5 lakh in a fiscal year. So, if you have exhausted the Section 80C limit by investing in Employees’ Provident Funds, Public Provident Funds, ELSS mutual funds, life insurance premiums, or others, you will not be able to claim a deduction for the APY investment.

What is the Atal Pension Yojana and who may participate in it?
On June 1, 2015, the government introduced the Atal Pension Yojana to give social security to all Indians. The scheme’s minimum and maximum age requirements are 18 and 40, respectively. From the age of 60, a subscriber will get a set pension. Individuals can choose from the following pension amounts:
a) Rs 1,000/month
b) Rs 2,000/month
c) Rs 3,000/month
d) Rs 4,000/month
e) Rs 5,000/month

Contributions to APY can be made on a monthly, quarterly, or semi-annual basis. The amount of contribution is determined by the amount of pension chosen and the individual’s age. The earlier an individual begins investing in the system, the smaller the contribution amount.

For example, an individual commencing to invest in the pension system at the age of 18 will be required to pay a monthly contribution of Rs 210 for a monthly income of Rs 5,000. An individual commencing to invest at the age of 40, on the other hand, will need to make a monthly commitment of Rs 1,454. Take notice that the investments must be maintained till the age of 60. As a result, the lowest investment time is 20 years, while the maximum investment duration is 42 years.

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